Market Psychology

DEFINITION of 'Market Psychology'

The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.

BREAKING DOWN 'Market Psychology'

While conventional financial theory describes situations in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.

Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction.

RELATED TERMS
  1. Trading Psychology

    The emotions and mental state that dictate success or failure ...
  2. Market Sentiment

    The overall attitude of investors toward a particular security ...
  3. Fear And Greed Index

    An index developed and used by CNNMoney to measure the primary ...
  4. Sentiment Indicator

    A graphical or numerical indicator designed to show how a group ...
  5. Consumer Sentiment

    A statistical measurement and economic indicator of the overall ...
  6. Loss Psychology

    The emotional aspects associated with investing and the negative ...
Related Articles
  1. Active Trading

    The Financial Markets: When Fear And Greed Take Over

    If these unpleasant emotions are allowed to influence your decision-making, they may cost you dearly.
  2. Forex Education

    Step 9: Keep Emotions At Bay

    Want to invest but don't know where to start? Learn how to make your money work for you with these tips.
  3. Markets

    The Fear And Greed Cycle Lives On

    The last few years in the market have been an interesting experiment in psychological conditioning and overall complacency. Despite the bad news in the markets and overall economy.
  4. Options & Futures

    The Importance Of Trading Psychology And Discipline

    Find out how investing success can be more about your mindset and less about the markets.
  5. Active Trading Fundamentals

    10 Timeless Rules For Investors

    Find out what most investors are doing wrong, and how you can do it right.
  6. Active Trading Fundamentals

    Behavioral Finance: Key Concepts - Mental Accounting

    By Albert PhungKey Concept No.2: Mental AccountingMental accounting refers to the tendency for people to separate their money into separate accounts based on a variety of subjective criteria, ...
  7. Trading Strategies

    Profit Without Predicting The Market

    Traders who try to predict the future can actually harm their trading options.
  8. Investing

    Investing In Crisis, A High Risk-High Reward Strategy

    The financial crisis of 2008 and the great recession that followed is still fresh in the memories of many investors.
  9. Investing Basics

    The Casino Mentality In Trading

    Many new traders treat the market like a casino, placing unwise bets and hoping for the big win.
  10. Professionals

    Special Circumstances

    Special Circumstances
RELATED FAQS
  1. What methods can be used to measure and profit from investor sentiment?

    First of all, when people talk about investor sentiment, or market sentiment, they are referring to the aggregate attitude ... Read Answer >>
  2. What are the benefits of using open interest as an indicator?

    Find out more about the open interest of option contracts, what the open interest indicates and the benefits of monitoring ... Read Answer >>
  3. How can I tell if I'm an emotional investor?

    Successful investors possess the important trait of emotional stability, which means that they base their investment decisions ... Read Answer >>
  4. What are common investing mistakes in bear markets?

    Learn why investing in a tumultuous market can be challenging even for the most experienced investors. Avoiding these common ... Read Answer >>
  5. What's the difference between consumer confidence and consumer sentiment?

    There isn't a difference between consumer confidence and consumer sentiment. Both terms are used to refer to the degree of ... Read Answer >>
  6. What causes a significant move in the stock market?

    There is a nearly infinite number of factors that can cause the stock market to move significantly in one direction or another. ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center